INTHEBLACK September 2021 - Magazine - Page 9
OECD/
G20
While the progress to an agreed commitment is a
positive step, many details remain to be sorted out. For
MNEs and their advisers, significant uncertainty remains
in terms of the formulas, carve-outs, simplifications,
exemptions, adjustments and dispute resolution processes.
With the rules expected to be implemented by 2023,
the ambitious timeframe places significant pressure on
lawmakers, policy advisers and tax administrators to
understand the impacts of the proposed plan on their
jurisdictions and determine their approach to
implementation.
Jurisdictions that currently offer corporate tax rates lower
than the yet-to-be-determined minimum effective tax rate,
or whose exemptions and incentives reduce the effective
tax rate below the threshold, will need to consider the
implications for their economic and fiscal policy settings.
OPPORTUNITIES TO ADDRESS CHALLENGES
The intention to reduce administration and compliance
costs has been welcomed. However, experience with
transfer pricing and country-by-country reporting
requirements suggests that there will be challenges.
The implementation of Pillars One and Two may also
provide an opportunity to address existing difficulties
with the timely and efficient resolution of cross-border
tax disputes, and the proposal to include dispute
prevention and resolution mechanisms will be critical
to avoid double taxation.
As the two-pillar solution progresses, tax
administrations will need to engage with affected MNEs
and their advisers to ensure that the new rules are
understood and adopted.
It is also likely that there will be an increased use of and
dependence on multilateral advance pricing agreements,
mutual agreement procedures (MAPs) and perhaps even
joint audits to provide certainty.
This is likely to place pressure on tax administrators to
enhance their engagement with other jurisdictions and
seek to resolve disputes in a more timely manner, with
the Inclusive Framework also monitoring MAP provisions
under BEPS Action 14.
After the detailed plan is released in October, there
remain further steps, including the ratification of a
multilateral instrument, which would underpin Pillar
One and the passage of the rules through each
jurisdiction. The extent to which there will be
unanimity and agreement upon the details remains
to be seen.
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